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Steel pricing uneven, but demand steady: Olympic

Keywords: Tags  Olympic Steel, David Wolfort, CTI, steel prices, service center, steel tube, Michael Cowden

TORONTO — Olympic Steel Inc. reported "choppy" steel prices in the first quarter as increased supply of flat-rolled steel put margins under pressure.

"The first quarter could be characterized as uneven, with most of the quarter under supply-side pricing pressure. This resulted in choppy steel prices and pressured margins, especially in carbon and stainless flat-rolled areas," Olympic Steel president and chief operating officer David Wolfort said during an earnings conference call.

Other Olympic executives noted that the increased supply came from both domestic mills and imports, as high prices in the United States compared with the rest of the world attracted offshore offers.

The Bedford Heights, Ohio-based metals service center sold 311,000 tons of flat-rolled material in the first quarter, up 21 percent from the fourth quarter but down 1.9 percent from the first quarter of 2011, Wolfort said.

The decline resulted largely from a "robust" spot market in the first quarter of 2011 that wasn’t repeated in the same quarter this year, he said. The first half of the year also is typically a time for price increases, which haven’t happened as often in 2012.

Olympic has shifted more of its business to contracts, partially due to a less-active spot market, Wolfort said. However, demand has stayed consistent throughout the first quarter, with the second quarter on course for a similar trend, he added.

Olympic singled out as bright spots the startup of a new temper mill in Gary, Ind., and the continued strong performance of Romeoville, Ill.-based Chicago Tube & Iron (CTI). Olympic’s new specialty metals facility in Streetsboro, Ohio, should boost its ability to serve the food and food services market. Specialty metals now make up about 10 percent of the company’s consolidated sales mix, Wolfort said.

The Gary facility ramped up to 170 tons per day by the end of the March and is now at 30 percent of its full capacity of 150,000 tons per year, he said, noting that CTI achieved higher profit margins than the company as a whole, notching up the strongest first-quarter performance in its history. It is expected to continue performing well in the second quarter.

CTI recorded product sales of $65.4 million, or 17 percent of Olympic consolidated sales, Wolfort said. "We are now a major player in pipe and tube," Wolfort said.

Olympic executives pegged capital expenditures at about $8 million in the first quarter and between $30 million and $37 million for the year. Roughly $5 to $10 million of that will be used for maintenance and to keep existing facilities up and running, while some will also be used for new equipment.

Olympic will be looking more at mergers and acquisitions than at organic growth in the near future, they added.

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